The Dow Jones Industrial Average finished at 12,822.57, up 45.48 points, or 0.4%, on the week. But Friday it fell nearly 1%. The Standard & Poor's 500 index rose six points, or 0.4%, to 1362.66, but Friday it lost 1%. The Nasdaq Composite, which fell 1.4% Friday, still managed a 17-point or 0.6% gain on the week to 2925.30. Bucking the trend, the small-cap Russell 2000 index fell 9.45 points last week, or 1.2%, to 791.54.

"There are no aggressive buyers out there, and no aggressive sellers absent news," says Christopher Zook, chief investment officer of CAZ Investment. The Spanish yield spike hurt Friday, but "people are afraid to be short" when the possibility remains of further quantitative easing by the Federal Reserve, he says. That was the market's take on Fed Chairman Ben Bernanke's remarks last week to Congress, he adds.

With the beginning of August near, the market is fast approaching the anniversary of a difficult time last summer, when the S&P 500 dropped 14% in a matter of a few days. S&P's downgrade of U.S. debt, bickering over the country's debt ceiling, and poor second-quarter GDP debt data combined to send the market reeling.

The downward revision to last year's first-quarter growth was taken poorly by the market one year ago, heightening fears of a recession, says David Kelly, chief global strategist for JPMorgan Funds. The 2012 U.S. second-quarter GDP growth figure and, perhaps more important, the first-quarter revision—out July 27—could be a decisive influence this week, he notes.

"Is the U.S. economy growing dangerously slow—slow enough that it stalls—is the question investors will be asking." A relatively sanguine Kelly answers, "It's not V-shaped growth, but corporate earnings are growing slowly in a slowly expanding economy."

And while Spanish yields are soaring, investors are getting negative real yields if they buy German, Austrian, Finnish, and Dutch bonds. In other words, folks are so desperate to park their money in what's considered a "risk-free" investment, they are paying those governments to hold their money.

With the string of Fridays where prices have been boosted or torched by European worries this year, you have to wonder when the market's déjà vu over Europe is going to turn into ennui.

Last Tuesday, the shares plunged 13%, to $25.96, after the company nudged up earnings guidance for the fiscal year ending next Jan. 29 to $1.48 to $1.52 a share from $1.46 to $1.50. The latter, in turn, had been raised from $1.40 to $1.48 on June 5. The next day, the stock plunged 21%.

Why is this stock, well, not so firm?

The answer could be weakening sales growth and the prospect that this might persist. Each time the company has raised profit guidance slightly, it either significantly cut revenue and same-store sales guidance—as it did last week—or missed revenue expectations, as it did on June 5. On that date, it reported first-quarter sales of $210 million, versus expectations of $212 million.

Last week, the company also lowered its revenue guidance—which it had reaffirmed as recently as June 5—to $1.01 billion to $1.03 billion from $1.03 billion to $1.06 billion. The difference works out to only about a penny a share. But over the long term, a stock awarded a growth multiple must consistently boost sales and earnings.

Mattress Firm falls into that category, trading at nearly 17 times this year's consensus earnings estimate of $1.60 a share. Perhaps more important, Mattress Firm slashed its annual same-store sales-growth guidance last week, to the "high single digits" from 10% to 12%. It was 16.1% in the first quarter and 20.5% last year. The stock closed last week at $27.74.

At best, these don't look like auspicious trends, particularly with a company whose fate is tied to consumer confidence, which also appears to be slipping.

At Mattress Firm's enterprise value (net debt plus market cap) of $1.1 billion, investors are valuing each of the 935 company-owned stores at $1.1 million. That's almost 10 times the typical $126,000 that Mattress Firm says it invests to open an outlet.

Yet barriers to entry are low in this business, and there's intensifying competition, particularly at the high end. For example, mattress maker
Tempur-Pedic Internationaltpx -0.15558267236119586%Tempur Sealy International Inc.U.S.: NYSEUSD65.458
-0.102-0.15558267236119586%
/Date(1481300871896-0600)/
Volume (Delayed 15m)
:
54156
P/E Ratio
30.89622641509434Market Cap
3795989482.66357
Dividend Yield
N/ARev. per Employee
434042More quote details and news »tpxinYour ValueYour ChangeShort position
(TPX) last month predicted that its second-quarter earnings would be slashed by about 50% on price-cutting by new entrants and buyer incentives.

For a retailer like Mattress Firm—which sells Tempur-Pedic and
Sealy
(ZZ) products, among others—the higher-margin specialty mattresses, like Tempur-Pedic's, now make up almost 50% of sales, up from 39% one year ago. A squeeze on Tempur-Pedic's margins, for example, should eventually reach Mattress Firm, too. Yet the retailer's stock has sharply outperformed both mattress makers this year, rising 17% to Sealy's 4% gain and Tempur-Pedic's 48% drop (half of which occurred after Barron's ran a negative cover story on Tempur-Pedic's prospects on May 14).

Perhaps some investors think the nascent housing recovery has something to do with Mattress Firm's strong growth last year, but 80% of such sales are typically replacement.

The Houston-based retailer has a short track record as a public company; it had an initial public offering on Nov. 17 at $19. The stock traded as high as $46 in the spring. In the five years before the IPO, Mattress Firm's sales and earnings-growth histories were checkered. Some two-thirds of the outstanding shares are held by Boston-based private-equity firm J.W. Childs Associates, so there's a big overhang of shares, too.

J.W. Childs didn't respond to a request for comment. Mattress Firm said it is committed to executing on its growth strategies, selectively expanding in underpenetrated markets and providing customers with great brands to drive profitable growth.

Right now, the way things are going for Mattress Firm, shareholders are probably hoping the company keeps its profit-guidance increases to itself. One or two more, and the stock could sag like a 20-year-old mattress.

For one thing, the Latrobe, Pa., company is one of the biggest producers of heavy-duty industrial products, like machine tools used for cutting and metal-working. And the 75-year-old mid-cap has a long and more consistent track record of sales, earnings, and operating-margin growth.

Still, that history has meant little to investors lately, who have abandoned this sector because of growing apprehension about global growth. The stock has slid 30% since mid-March, sharply underperforming the broad market, which was down 3% over the same stretch, and the S&P 400 industrials, which were down 11% in the period.

In addition to general investor rotation out of the sector, Kennametal orders are trending in the wrong direction. For example, Kennametal recently said its organic order rates for the three months ended May fell 2% from the same year ago period. That growth rate has been falling steadily over the past 12 months.

The company is getting disproportionately hurt by the economic slowdown because about 25% of its sales are tied to the relatively hard-hit energy and mining-related industries, says Scott Sindelar, a portfolio manager at LaSalle Street Capital Management in Chicago. Among other things, Kennametal makes the cutting tools, and saw teeth for them, used in underground mining and road construction, as well as tools used in horizontal drilling for natural gas.

Near term, the gloom might not lift, he adds, but he calls the long-term dynamics "attractive." LaSalle bought Kennametal shares last fall and has added to its position in the downdraft. "We think this is temporary," he says of the sales slowdown in, for example, the coal and natural-gas markets. Natural-gas prices have already risen from the lows they hit in April.

Kennametal is also a little less cyclical than some might believe. In the "razor or blades" model, it sells the blades. Sindelar notes that, while big-machine sales weaken in industrial slowdowns, the consumable tools sold by Kennametal are affected less.

For the long-term investor, the stock looks cheap at $34, the money manager argues. At a P/E ratio of 8.5 times consensus analyst estimates of $3.77 for the fiscal year ending June 2013, Kennametal's valuation is much below its median forward P/E of 14 and not too far from its low of seven. "It's a cyclical stock, but two-three years out, this will be worth a lot more than it is today." And as economies recover, Deloro Stellite, a company partially exposed to Europe that Kennametal bought earlier this year, will bring growth.

Another bull on the stock is Alexander Roepers, a value and activist investor who runs Atlantic Investment Management in New York. He recently increased the hedge fund's stake to 6.5% from 5.4%. He's expected to push management to implement a share-buyback plan.

Investors will closely examine Kennametal's results for its fiscal fourth quarter, ended in June, due to be released Thursday. Sindelar warns that the earnings and revenue numbers are likely to be "light" and that there could be some negative spillover into earnings expectations for fiscal 2013. If he's right, the gloom may give the patient investor an even more advantageous entry point.